What's behind sky-high Berkeley apartment rents?

BERKELEY -- Apartment rents hit an all-time high here last year as more affluent families moved to the city and competed for a stagnant supply of homes, according to the city's rent control board.

It's a situation going on all around the bay as former homeowners pummeled by the foreclosure crisis and new hires in the technology industry compete for a limited supply of rentals.

The median rent for a two-bedroom apartment was $1,850 a month in the last quarter of 2012, an 8.8 percent increase over the year before, according to the Berkeley Rent Stabilization Board. A one-bedroom now goes for about $1,325 a month, up 6 percent, the board said.

"It's pretty amazing," said rent board Deputy Director Stephen Barton. "The rents in new buildings downtown are crossing $3,000 a month for a two-bedroom because they are in new prime condition and in easy walking distance of the UC Berkeley campus and BART."

Barton said about one-third of the renters in the city are students.

What's happening in Berkeley is similar to other cities that ring the bay: more affluent people moving in fueled by jobs in the technology sector coupled with a housing supply that can't keep pace. And people who lost their homes to foreclosure in the last five years are now renting.

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In Berkeley, the population has grown from about 102,000 in 2000, to 113,000 in 2011, according to the U.S. Census Bureau. During that time the median income has grown from $44,000 a year to $61,000 a year. But the number of available rental units has stayed at about 26,000 over the same time, meaning more people are competing for the same amount of apartments.

Another measure of the growing number of affluent families in Berkeley is the falling number of school children in kindergarten through eighth grade who qualify for free and reduced lunches based on their family's income.

According to a Feb. 13 school board report, this is the first school year in which all of the elementary schools in Berkeley had less than 50 percent of their students on the free and reduced program. Just 30 percent of students in kindergarten receive free or reduced lunches while about 50 percent of eighth-grade students are in the program. That situation suggests newer families moving into Berkeley have more money and can probably pay higher rents.

"How we read this is there is definitely a changing demographic of children being enrolled in Berkeley schools," said Neil Smith, acting co-superintendent.

School board member Karen Hemphill said her neighborhood near San Pablo Park on the southwest side of town has undergone massive change.

"When I moved into the area in the mid-1990s, it was predominately African-American, working class or poor," Hemphill said. "Now you walk around and the ethnic balance has changed. I could think of several houses within two blocks of me where the African-American grandmother bought the house and after she died, what replaced her family was the couple with the baby and the BMW. It's very rare to see a working class family replace a working class family that left."

Nick Grotjahn, spokesman for RealFacts, a market research company in San Francisco, said what is happening in Berkeley is happening all around the bay.

"We look at it from the demand side," Grotjahn said. "During the foreclosure crisis, a lot of people lost their condos or homes. And you've had an almost standstill in new construction from 2008 through 2011 with no new product coming on line. There's no new product to absorb all the demand. You get 100 people lining up to see an apartment, you can charge whatever you want."

Grotjahn said rents in San Francisco are even higher than Berkeley, and he and others expect people priced out of that market to start looking in the East Bay for apartments, even if it means commuting.

San Francisco rents average $2,748 for a two-bedroom in apartment buildings with over 50 units while a one-bedroom goes for $2,629, he said. In Oakland, a one-bedroom, which are in high demand, runs an average of $1,807 and a two-bedroom $1,654.

"With an $800 or $900 difference between San Francisco and the East Bay, even factoring in commuting, people are thinking 'I'm still ahead $600 or $700, and that's not terrible,'" Grotjahn said.

That's just what developers, who are planning to build 500 to 1,000 new units in downtown Berkeley, are expecting, Barton said.

"The people building in downtown are looking at UC Berkeley as an anchor, but they're also marketing this as five BART stops from downtown San Francisco," Barton said. "We're going to get high-income young professionals who feel the rents are too much in San Francisco, but they like Berkeley. It would bring in a whole new demographic that can pay the rents."